Biden tax plan could see rich in California, New York and New Jersey pay 62% in tax, highest in 30 years
Democratic presidential nominee Joe Biden has said time and again in the run-up to the election that he will impose high taxes on the wealthy. If this becomes a reality, highest earners in states such as New York, New Jersey and California could end up paying 62 percent in combined state and federal tax rates. The steep rate would hit those earning more than $400,000 annually while those earning below that are likely to receive tax cuts.
In California, top earners might face a combined tax rate of 62.6 percent under the Democrat’s plan, reports cited DC-based think tank Tax Foundation as calculating. In New Jersey, the combined rates could be just over 60 percent while in New York they could be 58.2 percent. In Big Apple, which is home to some of the richest, the combined city, state and federal income tax rate would be over 62 percent. All three states are deep Democratic bastions.
Currently, the top US statutory tax rate is 37 percent with the average earner in the highest tax bracket paying nearly 27 percent after their accountants’ help. According to the Biden campaign, the ‘effective rates’ are more important than the statutory rates. While the statutory rate is the rate imposed by law on taxable income that comes under a given tax bracket, the effective rate is the percentage of income actually paid by an individual/company after calculating tax breaks, deductions and credits, among other factors.
If Biden manages to defeat President Donald Trump on November 3, the effective tax rate for the top 1 percent would go up to 39.8 percent from the current figure, as per the Tax Policy Center. It means top earners in California and NYC would pay effective tax rates (state and federal) of around 53 percent, compared to the roughly 40 percent they pay in effective rates as of today.
Also, if the Democrats succeed in flipping the Senate, they would find themselves in a position to pass legislation removing a $10,000 cap on state and local tax deductions, the combined state and local tax rates for top earners could be even lower. Yet, the official combined tax rates of more than 60 percent for the top earners would be the biggest in more than three decades and even all the rates that were seen under the Barack Obama administration, a CNBC report said.
The report cited Tax Foundation’s Jared Walczak who said if one includes the contributions to the tax hikes by the employers (that are often passed to employees), the combined tax rates would go up even up — to over 65 percent in California, nearly 63 percent in NJ and 64.7 percent in NYC. The rise could be even more if California and NY raise the taxes on high earners, something some lawmakers have suggested to reduce budget gaps with multi-billion dollars.
“These rates would be the highest in about three-and-half decades and imposed on a broader tax base than was in place previously,” Walczak was quoted as saying by reports.
Biden’s plan to raise taxes for rich Americans and the corporate bodies has been one of the most discussed topics in this election season. In the first presidential election held in Ohio on September 29, Trump attacked Biden’s tax plan saying it would only ruin the US economy.
Whoever wins, govt spending will rise: Expert
Eric Robertson, head of the global macro strategy at Standard Chartered Bank, told CNBC in an interview last month that Biden’s plan would put pressure on domestic equities at credit markets and affect the dollar’s progress. He also said irrespective of the result of the election, government spending will see a rise in the next couple of years to tackle the pandemic’s fallout.
The Biden camp looks to mitigate that cost of increased spending by undoing some tax cuts implemented by the current administration, and that could eventually see higher corporate taxes, higher taxes on high earners, etc., Robertson added.